3 signals that show a US recession is farther away than most investors think

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• Recent economic data suggests a US recession is farther away than most investors think.
• A rebound in gasoline demand and calmness in the bond market are sending bullish signals about the economy.
• Detailed below are the three signals that suggest a recession is not imminent, according to DataTrek Research.

Everyone from Wall Street pros to big business CEOs have been warning about an imminent recession hitting the US economy, but recent data suggests otherwise, according to DataTrek Research.

There are plenty of reasons to explain why the drum beat keeps growing louder about an imminent recession, including that both interest rates and inflation remain elevated and the second biggest bank failure in US history happened just one month ago.

But according to a Tuesday note from DataTrek Research co-founder Nicholas Colas, there are actually three encouraging signs that suggest a recession is not as close as some investors think.

1. Fed GDPNow estimate shows resilient growth in the first-quarter

The latest Atlanta Fed GDPNow model estimate suggests first-quarter GDP growth will be 2.2%. The model has a history of being more accurate than consensus estimates, and while its forecast has dropped from a high of more than 3% just a couple weeks ago, 2% growth is still solid when investors consider all of the lingering concerns in the economy.

"2% growth after last year's aggressive series of Fed rate hikes is impressive," Colas said.

2. March jobs report showed a continued decline in wage inflation

Wage growth in March was 4.2%, which, while still elevated, is well below last year's March reading of 5.9%. The trend of lower wage inflation is clear and it's not far off from returning to its 2010 to 2018 range of just under 3%. A continued drop in wage inflation would give the Fed reason to pause its interest rate hikes.

"While Fed Chair Powell and the FOMC can take some comfort that wage inflation is dropping, it is only doing so at a very leisurely pace. Us economic growth remains ok, so wage growth still has some fundamental support," Colas said.

3. Gasoline demand has rebounded

Demand for gasoline in the US turned positive in March, jumping 3.8% year-over-year. The rebound in gasoline demand has been buoyed by a near 20% decline in gasoline prices. The rebound in gasoline demand is a reversal of recent trends, as gasoline demand was consistently tracking below the prior year's levels. 

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"If households are using more gas, they may well be feeling better about other discretionary expenditures. With a looming recession top of mind for many investors, that is a hopeful counterweight to a myriad of other more bearish macro indicators," Colas said.

Bonus signal: Calmness in the bond market

Finally, the bond market is not acting like a recession is imminent, based on corporate and high-yield bond spreads, Colas highlighted.

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"Current investment grade and high-yield spread levels of 1.46 and 4.85 points over treasuries are below all prior periods of either worries about recession (1998, 2011, 2016) or at the start of actual downturns (2000, 2007, 2020)," Colas said.

"US corporate bond spreads are not at levels consistent with recession fears, let alone sounding a clear alarm about an imminent economic slowdown... the corporate bond market has a decent long term track record of catching a recessionary 'cold' long before stocks even get the sniffles. In fact, it is a bit of a hypochondriac. To hear this market say 'Yeah, I feel ok' is therefore a reassuring message," Colas concluded.